On the money

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Both campaigners chose their strategies well, but fear tactics on the economy won, writes Peter Hartcher.

The wellspring of all strategic thought, the collected wisdom of
an ancient Chinese clan collected under the name of Sun Tzu,
devoted more attention to the subject of battleground than any
aspect of warfare.

Of the 13 succinct chapters of the work known as The Art of
War, Sun Tzu spent two of them on the subject of battlegrounds,
advising commanders which to choose and which to avoid. Sun Tzu had
some advice for Mark Latham:

"If the enemy arrives before you and occupies the strategic
position, you must not engage the enemy. Instead you should retreat
to lure the enemy away to fight somewhere else. You should not
oblige your enemy by allowing him to choose the battleground."

Latham did heed this advice.

John Howard established from the first moment of this campaign
that he had occupied the strategic ground on the battlefield of his
choosing - the economy and national security. In these areas, the
Australian electorate says it trusts the Coalition over Labor by a
factor of two to one.

And, on first principles, a government presiding over an
economic boom occupies a powerful strategic advantage. So, as
Howard declared, the election is a referendum on the future of the
economy.

The Labor leader did not oblige the enemy. Latham sought to
shift the combat onto his own battleground, health and education.
In these areas, Australians have long said that they trust Labor
over the Coalition. The political topography gave the strategic
high ground to Latham. So he declared the election to be a
referendum on the future of Medicare.

Latham did have some success, and Howard did engage him
sporadically on Medicare. And when Latham announced the biggest
initiative of the campaign, his Medicare Gold policy offering free
hospital care for everyone aged 75 and over, he did win some
interest and support with the idea.

But, in the main, the campaign was fought on Howard's chosen
battleground. This makes sense of the five main features of this
campaign.

First, it explains why the Coalition campaign was so negative.
Howard could have boasted of the economy's strength, "the most
strongly performing economy in the Western world", and he did. The
unemployment rate is at its lowest in a quarter of a century, the
stockmarket at a record high.

But this was not enough, in itself, to hand victory to Howard.
Going into the election, the two main opinion polls in Australia
had Labor in a winning position, between six and eight percentage
points ahead of the Coalition.

In the week before the election was called, the HSBC economist
and former Keating adviser John Edwards explained this apparent non
sequitur of a strong economy but a weak sense of popular gratitude
to the Government: "Going into the 13th year of continuous
expansion, you have people in their 30s, with a house and kids, and
in their working lives they have never experienced a recession.
There's an expectation this is just the way the world works. A
whole generation has changed the parameters of economic
expectations. They take a strong economy for granted ... The
economic debate is somehow irrelevant to the election. The reason
is that, with this long run of prosperity, the Government didn't
create it, and Labor's not going to destroy it."

So Howard needed to make us appreciate the boom, make us fear
for its future, persuade us that the Coalition had a monopoly on
prosperity, and frighten us into thinking that Labor was indeed
going to destroy it.

That's why Howard's opening remarks of the campaign were the
most frightening imaginable for a nation of mortgage-holders: "It's
been calculated that if interest rates, under a future Labor
government led by Mr Latham, were to rise to the average of what
they were under previous Labor governments, that would add an
additional $960 a month to the average mortgage of the average
Australian family."

The Coalition kept the interest-rate scare running for the
duration of the campaign. In the final deluge of Coalition TV
advertising, it was the dominant theme. Labor reckons that, of the
estimated $10 million to $12 million the Coalition spent on TV ads,
about 75 to 80 per cent was devoted to negative ads attacking
Labor.

By the end of the campaign the Coalition ads were just about all
negative, and they all homed in on the twin targets of Latham's
unpredictability, and the prospect of frighteningly high interest
rates.

Second, the imperative of holding the contest on Howard's
battleground explains the level of false and misleading hyperbole
from the Coalition. To make us appreciate our good fortune, to make
us fear for our mortgages and our livelihoods, the Coalition needed
to go beyond the realm of the plausible.

Howard told us time and again that interest rates would go up
under Labor, and that they were always higher under Labor than
under the Coalition. Latham has called this the Big Lie of the
campaign. Howard had ended the campaign, said Latham this week,
"with the politics of the Big Lie. Don't tell a small lie, tell a
whopper."

How is Howard's gambit dishonest? Because it is not true that
mortgage rates under Labor are always higher than under the
Coalition. The standard mortgage rate in the Whitlam years averaged
8.91 per cent, according to Reserve Bank data, while in the Fraser
years it was 10.78 per cent.

And Howard's claim is dishonest because it neglects to take any
account of Labor policy. The boring truth is that Labor is
committed to the identical tenets of macro-economic policy that the
Government already pursues - to keep the budget in surplus and to
keep the Reserve Bank independent.

And, finally, Howard was being dishonest with his $960 because
if you apply to the Coalition the same logic that he applies to
Labor, you get a similar result.

Howard arrived at his claim of Labor's $960 a month by taking
the average prevailing mortgage interest rate during the
Hawke-Keating years of 12.75 per cent, and applying it to the
average new mortgage today. If you run the same exercise with the
Coalition, applying the average mortgage rate under the last
Coalition government of 10.78 per cent to the average new mortgage,
you arrive at an increase of 3.73 percentage points over the
existing average rate. That means Howard would add $621 to the
monthly payment on an average new mortgage in his next term.

The financial markets, a highly sensitive gauge of risk,
understand that Howard's scare campaign is baseless.

That's why, even when the polls have had Labor ahead, the
markets have been untroubled. The stockmarket has hit successive
record highs. The fixed-interest markets have shown no concern
about rising interest rates. The Australian dollar has been
firm.

But Howard has placed his hope and trust in the fear and
ignorance of the electorate. He hopes and trusts that voters in
battleground Australia - the marginal seats that determine which
party holds power - are not as informed or as sophisticated as the
capital markets.

Sun Tzu, incidentally, would not have quibbled at Howard's
tactics. In chapter one, on strategic assessment, is the precept:
"The art of war is the art of deceit."

Third, this unrelenting attack over interest rates helps explain
why Labor has had difficulty putting across its own message.
Consider the tasks. The Coalition really had only one big task in
its advertising campaign: to scare voters into fearing Latham and
his plans for your mortgage.

Labor was obliged to divide its advertising energies into three.
First, it tried to project a positive image of Latham; second, it
tried to tell a positive story about Labor's policy proposals; and
third, it tried to defend itself against Howard's Big Lie.

Labor officials estimated that they had spent 20 to 25 per cent
of their total TV advertising effort in trying to defeat the
Coalition's scare campaign on interest rates. "Interest rate
inoculation," they called it.

Fourth, this explains why the "v" word was largely absent from
the campaign. There was a collective wistful sigh, audible in the
air above our continent at some points in the campaign, that the
election was all about money - where was the vision?

Both leaders did try to articulate something of a vision: Latham
offered the prospect of Australia as a land of opportunity, while
Howard invited us to contemplate Australia as the land of freedom
of choice.

But the Coalition was so intent on making us appreciate the
boom, and frightening us into fearing for its future, that there
was no real airtime for its philosophical message. Similarly, Labor
was preoccupied, trying to communicate its new policy ideas while
deflecting the Big Lie.

Fifth, by successfully establishing the battleground, Howard was
able to turn a daunting pre-election disadvantage of six to eight
percentage points into a lead of similar dimensions in the final
polls of the campaign.

At the outset of the election campaign, voters said that the
most important thing in deciding their vote was the health system.
This was Labor's battleground, and this was where Labor wanted the
election decided. But in today's Herald Poll, when asked why
they had decided to vote for the party they had chosen, the No.1
issue was the economy. The Coalition had established the
battleground and used this to establish its lead going to election
day.

The Herald pollster, ACNielsen's John Stirton, observed:
"It's pretty clear Labor hasn't been successful in undermining the
idea that the economy is of highest importance, and that the
Coalition is better at it."